Draw the supply and demand for loans as functions of the, Financial Management

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Draw the supply and demand for loans as functions of the

Consider the market for loanable funds, which determines the real interest rate in the long run (see Section 4.1).

a. As usual, draw the supply and demand for loans as functions of the pretax real interest rate, r.

b. Suppose savers are taxed on their nominal interest income. If inflation rises, what happens to the supply and demand curves in part (a)?

c. What happens to the equilibrium levels of the pretax real interest rate, loans, and investment?

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